On Monday, the Administration submitted to Congress a $4 trillion budget proposal for FY2016 that includes $15.84 billion for the FAA. In context with the President’s other discretionary spending proposals, the increases in funding for FAA operations, modernization and research will be difficult to sustain through the budget process unless Congress and the President reach a new agreement on overall discretionary spending levels.

FY2016 FAA Budget Request

FY2015 Proposed FY2016 (% change from FY15)

Ops $9.74b $9.915b (+2%)

F&E $2.6b $2.855b (+10%)

RE&D $157m $166m (+6%)

AIP $3.35b$2.9b (-13%)*

Total $15.847 $15.836

*Proposal assumes increase in the Passenger Facility Charge (PFC) from $4.50 to $8.00 and focusing remaining funds on smaller commercial and GA airports.

Because of the proposed shift in AIP spending, it is not a straightforward exercise to assess the proposed FAA budget increase in the context of other domestic discretionary spending proposals. However, the proposed increases for operations, F&E and RE&D are 3.5% above current levels. This is in contrast to the Administration’s total proposed domestic discretionary funding increase of 7%.

While the additional proposed spending for FY2016 in F&E and RE&D are welcome, it does not appear those increases will be sustained in the long-term. The Administration’s out-year projections of FAA funding average approximately 2% growth through 2025 (see charts below). AIP would be sustained at the $2.9b level until FY2020 when it is projected to rise to $3.35b per year through FY2025. The proposed 10% increase in F&E funding for FY2016 actually increases out-year funding for modernization by $200m annually above the levels the agency reported to Congress just last summer in its capital development proposal.

Budget Outlook

So now we know. Last week in our scene setter we discussed the FAA budget proposal for FY2016 in context of its place within overall discretionary spending. We noted that discretionary spending is an increasingly smaller part of the federal budget and capped in statute by the Budget Control Act to allow for a less than one percent increase in spending next year. We also noted that in response to this situation the President has three choices:

Submit a budget proposal adhering to the caps;

Ignore the caps, propose spending increases and let Congress agree or make cuts to his proposals;

Propose new user fees and taxes to offset any proposed spending increases.

The President’s budget proposal essentially uses elements of choices #2 &#3. His overall discretionary spending numbers are 7% above the caps and the overall proposed budget would still deficit spend by $474 billion.

Discretionary Spending Caps (in billions)

Enacted FY15 Current Law FY16 President FY16 (proposed)

Defense $521 $523 $561

Non-defense$492$493$530

Total $1013 $1016 $1091

The ball is now in Congress’ court. It can live within the discretionary caps, which limit overall funding increases to less than one percent, and develop appropriations bills that are essentially flat. This would be difficult for many agencies to absorb. For example, given increased annual costs in categories such as FAA operations, a flat budget will essentially represent a cut to other parts of the FAA budget.

However, the President’s offer of increased defense discretionary spending may be intriguing to many congressional Republicans and could serve as the basis for a compromise similar to the Ryan-Murray agreement in 2013 when the discretionary caps were adjusted using various budgetary slight-of-hands to offset the increased funding.

By Bill Deere, Senior Vice President for Government and External Affairs

One of the things I have noticed since returning to aviation is the use of the term “sequestration,” with its implication that at some point this year or next there could be another mindless, across-the-board cut applied to the FAA budget. The good news is that thanks to the agreement reached in late 2013 between then House and Senate Budget Committee Chairmen Paul Ryan and Patty Murray and President Obama, we know that the application of an across-the-board cut to the FAA budget will not occur this year and is unlikely in future years.

We also know the overall budget numbers that lawmakers will be working from this year absent a change in law. However, that doesn’t make the FAA’s budget picture necessarily brighter. The Administration will release its FY2016 budget proposal next Monday, so now is a good time to review the FAA’s budget and what we should be looking for on budget day.

FAA Spending In Context

To understand the FAA’s budget situation we have to first understand the overall federal spending. The FAA’s annual budget of approximately $16 billion is part of a category of spending known as discretionary spending. In other words, Congress must annually fund discretionary programs through the passage of 12 appropriations bills. However, as we see in the chart below, discretionary spending is a small part of overall government spending.

Mandatory spending programs are determined by eligibility rules rather than the annual appropriations process. As you saw above, these programs represent the largest portion of annual federal spending. Examples of mandatory spending include Social Security, Medicare, Medicaid, and food stamps.

Breaking discretionary spending down further, we see that over half of all discretionary spending is devoted to national defense. As a result, the FAA competes for resources against a number of other worthy causes for a slice of the federal spending pie that represents only 13% of all government spending.

So the budget fights between Congress and the President of the last four years — fights that have resulted in government shutdowns and across-the-board program cuts — have largely been directed at approximately one-third of annual federal funding.

Worse, as you see below, discretionary spending has been steadily shrinking and will continue to shrink because mandatory spending is the real driver of annual budget deficits and growing debt.

The Congressional Budget Office (CBO) released a report this week noting that while an improved economy and reduced spending has reduced the size of annual budget deficits, they will begin to climb again starting in 2019, driven by the healthcare and other retirement costs of the baby-boom generation. The CBO also noted that federal debt held by the public will amount to 74 percent of GDP at the end of this fiscal year—more than twice what it was at the end of 2007 and higher than in any year since 1950 and that by 2025 it will rise to nearly 79 percent of GDP.

So what does this all mean? First, feel free to be less than impressed by those who brag about controlling federal spending, as some budgetary wits have nicknamed them the “One-Third Serious Caucus.” To really control government spending you have to, like Willie Sutton, go where the money is – mandatory spending.

In fairness to lawmakers, it is political suicide to reduce the benefits of mandatory spending programs absent the kind of grand budget deal that requires Congressional members from both parties and the President to all hold hands and jump in together.

Sequester Level Spending

A 2011 agreement between Congress and the President to address the seemingly endless disputes about federal spending and the debt limit resulted in the creation of a congressional “Super Committee” to develop a plan to control spending through savings in discretionary and mandatory spending and changes to revenue policy (i.e. taxes). A failure to reach agreement would trigger a “sequester” on the current and future federal discretionary spending levels contained in the agreement. It was thought at the time that the possibility of draconian cuts to both defense and non-defense discretionary spending would motivate lawmakers from both parties to reach agreement.

So of course lawmakers could not reach agreement, and by March of 2013 the sequester was triggered that cut part of the FAA’s funding mid-way through the fiscal year.

The situation reached comical proportions later in 2013 when House floor debate on discretionary spending bills for the following year (FY2014) became impossible as few members wanted to face the consequences to federal programs required by the draconian discretionary spending levels created by the sequester. The Bipartisan Budget Act of 2013, also known as the Ryan-Murray Agreement, created more realistic discretionary funding levels for FY2014 and FY2015 to act as a bridge to the levels sequestration requires for FY’s 2016-2021. Below are the discretionary limits (in billions) to which the Congress and the President must adhere absent a change in law:

Source: OMB, Budget for Fiscal Year 2015, The Budget, Table S-10 and CBO, The Budget and Economic Outlook: 2014 to 2024, February 2014, Box 1-1.

So when you hear someone express concern about “sequester spending levels,” they are referring to the numbers above, not the possibility of across-the- board spending cuts.

The question of whether discretionary spending is sustainable at the sequester levels was discussed at a recent event at the Brookings Institution. Opinions ranged from doable in the short-term to the possibility that, similar to the Ryan-Murray Agreement of 2013, Congress could once again “game the caps.” There was also discussion about whether lawmakers would attempt to stay within the overall discretionary cap but move some portion of non-defense discretionary spending to defense, something that would exacerbate the FAA’s budget challenge.

The FY2016 Budget Proposal and the FAA

The President will submit his budget proposal to Congress on Monday, February 2nd, marking the start of another part of the annual congressional calendar, the development of the FY2016 budget.

As we see above, the Ryan-Murray budget deal of 2013 was a bridge of increased discretionary funding for FY2014 and FY2015 to approach the cap level on discretionary spending for FY2016 (including the FAA’s budget). For next year it is almost the same level as the current year. This would make a major funding increase for the FAA unlikely absent a decision to cut other discretionary spending.

However, the President has choices, he may:

Submit a proposal adhering to the caps;

Ignore the caps, propose spending increases and let Congress agree or make cuts to his proposals;

Propose new user fees and taxes to offset any proposed spending increases.

These choices will not only impact the FAA but also tell us a great deal about how smoothly we can expect the budget process to unfold this year.

Finally, we will also be watching to see if the administration proposal will continue to contain proposals impacting GA in a negative way including user fees, cuts to contract tower funding and changes to the aircraft depreciation schedule.

More next week.

By Bill Deere, Senior Vice President for Government and External Affairs

By Bill Deere, NATA Senior Vice President for Government and External Affairs

The lame duck session of congress is expected to adjourn this week after addressing several must-pass items of interest to aviation.

Late today, the House Appropriations Committee is expected to unveil a “cromnibus,” legislation to fund the government for the rest of the year. The legislation will combine a short-term funding extension for the Department of Homeland Security and funding for the balance of the fiscal year for other government operations including the FAA. Any major funding increases are expected to fall on the international side, addressing the Ebola outbreak, operations in Syria and Iraq, and assistance to Ukraine and the Baltic states. The House is expected to consider the legislation Wednesday, leaving the Senate one day to consider the legislation in advance of the expiration of the government’s current funding bill.

Also this week, the Senate is expected to consider a one year extension of approximately 50 tax provisions that expired at the end of 2013, including bonus depreciation and section 179 expensing. Last week, the House passed a one year extension after House-Senate negotiations over longer-term extensions for certain provisions including bonus depreciation and section 179 expensing stalled in the face of a possible presidential veto threat. Late last week, the office of Senate Majority Leader Reid reached out to leading members of the coalition in support of bonus depreciation, including NATA, to refute a news story that suggested the Senate might not have time to pass the House tax extenders bill before adjourning.

Finally, Senate Majority Leader Reid and Minority Leader McConnell must still agree on a final package of nominations for floor action before adjournment. Among those nominees awaiting floor action is Christopher Hart to serve as Chairman of the NTSB. Hart’s nomination cleared the Senate Commerce Committee in July but has yet to be acted on.

By Bill Deere, NATA Senior Vice President for Government and External Affairs

The mid-term elections are concluded, the people have spoken, and Congress returned on Wednesday from two months of campaigning for a lame duck session that is expected to end in mid-December. For those of you unfamiliar with the term, “lame duck session” is the nickname for a session of Congress that follows an election and includes lawmakers who will not be members of the next Congress, having decided to retire or were defeated.

Initially, it was thought that should control of the Senate change hands as a result of the election, very little legislative activity would occur in the lame duck. However, even with Republicans winning control of the Senate, an effort is being made to act on at least two fronts, appropriations and taxes.

FAA Appropriations

Before adjourning, lawmakers approved legislation funding the government through December 11th. The legislation also contained other provisions including a nine month extension of the Export-Import Bank. As a result, the FAA has been operating since October 1st at funding levels below the increases recommended for the agency by the House and Senate Appropriations Committees.

The expiration of government funding on December 11th was deliberately chosen by House and Senate appropriators to give them time to develop an “omnibus” spending package for the balance of the fiscal year. This omnibus bill would literally wrap all twelve spending bills into one massive piece of legislation. Should that occur, we expect the FAA will secure a funding increase that will also include bill language requiring funding of contract towers and prohibiting the development of unauthorized user fees.

Of course, the biggest decision is whether or not to move such a package. At this writing it appears House Republicans are divided about whether to take up a full year spending package or extend government funding for a few months and revisit the issue in the new Congress.

Tax Extenders

NATA has been serving as one of the leading members of a multi-industry coalition of supporters that includes the U.S. Chamber and the National Association of Manufacturers, in support of renewing a package of approximately 55 tax provisions that expired at the end of 2013.

The “extenders” of particular interest to our industry are the immediate expensing of 50% of new investments in equipment and software commonly referred to as “bonus depreciation” and its small business counterpart known as Section 179 expensing.

The House and Senate have approached the issue in different manners. The Senate Finance Committee approved a two-year extenders package that included bonus depreciation and Section 179. The full House approved a series of bills making certain extenders permanent changes in tax law, including both Bonus and Section 179.

Similar to the appropriations situation, the fate of extenders remains fluid. While it is doubtful that the House approach will be fully accepted by the Senate Finance Committee, its chairman, Senator Ron Wyden (D-OR), has indicated his willingness to explore a mix of permanent and multi-year extenders. While a failure to act this year could make filing season very problematic, there is nevertheless an ongoing discussion about the advantages of acting on extenders retroactively in the new Congress.

NATA and other coalition members are meeting with key members of the tax writing committees and the congressional leadership to coordinate efforts toward adoption of a permanent or multi-year extenders package.

Other Aviation Issues

The House Transportation and Infrastructure Committee is taking advantage of the lame duck session to jump start its work on the FAA reauthorization. On Tuesday the 18th the full committee will hold a hearing entitled: “FAA Reauthorization: Issues in Modernizing and Operating the Nation’s Airspace.” In addition, the Senate Commerce Committee approved the nomination of Christopher Hart to serve as Chairman of the National Transportation Safety Board. Action by the full Senate is still required before adjournment.

By Bill Deere, NATA Senior Vice President for Government and External Affairs

On Monday, Congress returned from its traditional August recess but will only stay in session for a short time before adjourning again to campaign in advance of the mid-term elections. The House is expected to leave by September 19th with the Senate adjourning as early as the following week. In such a brief time, not much is expected by way of legislative action but the first important step was put in place yesterday to avoid a government shut down when current funding expires on October 1st.

Yesterday, the Chairman of the House Appropriations Committee, Representative Hal Rogers (R-KY), unveiled a draft continuing resolution (CR) that will fund the government at current spending levels through December 11th. A CR is legislation designed to keep the government running on a temporary basis until the completion of the twelve regular appropriations bills. The CR also contains other provisions including a proposal to extend the authorization of the Export-Import Bank until June 30, 2015. For the FAA it means funding – for the moment at least – below the increased levels recommended for FY2015 by the House and Senate Appropriations Committees. The House will consider the CR the week of the 15th.

As a result, long-term government funding and final resolution of issues like tax extenders are likely on the back burner until a post-election “lame duck” session. The duration and issues to be considered in the lame duck will turn on the results of the general election – particularly the battle for control of the Senate.

By Bill Deere, NATA Senior Vice President for Government and External Affairs

Congress will shortly adjourn for its annual summer recess and return after Labor Day for a short session before adjourning again in advance of the November general elections. As a result, it is likely that commencing October 1st the FAA will once again be forced to operate — for at least some period of time — through another stop-gap funding bill. How did this come to pass?

It wasn’t supposed to. The Bipartisan Budget Act of 2013, the agreement that ended the government shutdown, was supposed to pave the way for the first regular appropriations to fund the government since FY2010. By establishing the overall discretionary budget ceiling for FY2015, the legislation was intended to provide for at least one year of relative budget peace.

At first that’s what we saw, a return, for at least one year, of regular order in the federal budget process. As we reported to you in May and June, the House and Senate Appropriations Committees held their budget review hearings and developed the annual spending bills, including the one that funds the FAA. You may recall there was a lot in those bills about which to be excited. Both the House and Senate versions provided overall FAA spending levels above the Administration request, funded contract towers, included prohibitions against the development of new user fees, and provided guidance to the agency on important issues including streamlining the certification process and improving the consistency of regulatory interpretation.

While the appropriations process moved along in the House of Representatives, the process has hit a wall in the United States Senate. Spending bills have been reported out of the Senate Appropriations Committee with bipartisan support. However the battle for control of the Senate has devolved into a fight over amendments to be made in order during floor consideration of legislation. The result, only critical “must pass” legislation to fix the problems at the Veterans Administration and prevent a cessation of highway funding are considered, in other words — more gridlock.

Where do we go from here? After November’s general election Congress is expected to return for a “lame duck” session. We can only hope that post-election the Senate will be able to take up these bills so general aviation does not lose the benefits of the funding and guidance contained in these FAA spending bills.

By Bill Deere, NATA Senior Vice President for Government and External Affairs

Today, the full Senate Appropriations Committee approved for floor action its version of the Transportation and Housing and Urban Development Appropriations bill for fiscal year 2015 that will begin on October 1, 2014. The bill provides $15.86 billion to the FAA for next year, $580 million above the administration request. Similar to its House counterpart, a report prepared by the Committee accompanies the legislation and provides greater detail on the spending levels for individual FAA programs as well as expressions of congressional interest and required reports on a variety of aviation related subjects.

The Committee provided $149 million for the contract tower program including $10.35 million for the cost share program both amounts above the Administration request. These levels track very closely with the levels requested by NATA and number of other aviation associations in a letter to House and Senate Appropriators earlier this year.

Like its House counterpart, the Senate also expressed support for streamlining the certification process and requested a report on the measures of effectiveness that FAA is applying to its work in implementing the recommendations of the Aviation Rulemaking Committee (ARC).

Senate appropriators expressed particular interest in the FAA’s progress toward improving the consistency of regulatory interpretation. It exemplified its concern by citing a recent divergence in interpretation between the Seattle, Juneau and Anchorage flight standards district offices. As a result, the Committee directed the FAA to include a section in its annual aviation safety workforce plan devoted to the actions undertaken and planned by the agency to improve the consistency of its regulatory interpretations.

Majority Leader Reid has indicated at least two weeks will be set aside in June for the consideration of appropriations bills. The full House will take up its version of the legislation as early as next week. NATA will continue to keep you apprised as events unfold.